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Several years ago, I was having a conversation with a fellow leader who was having a difficult time with their team. The team was disgruntled and disengaged.

At the end of the discussion, the manager said, “Well, they have a fixed salary and we have no control over increasing their pay, so what can we do.”

The comment was declared in such a way as to suggest that pay is the only thing that motivates people.

I hear this frequently and it is based on a lack of understanding of what actually motivates people. It is often used as an excuse for doing the hard work of leadership and team engagement.

Yes, pay is important, but it is not the only thing that motivates people.

This article will look at the extensive research on the topic, and identify some principles and guidelines leaders can use to motivate their teams, and increase employee engagement.

Money is messy

Since the early 2000s, the Gallup Organization has been examining the key factors most related to employee satisfaction and engagement at work. I’ve written prior articles about the 12 questions that best predict employee engagement.

Over several decades, they tested and analyzed more than 100 million questions across industries and countries, to identify these 12 factors.

They have been asked frequently why they do not include a question about employee pay or compensation. This is because the issue of pay is a messy and highly emotional topic that affects people very differently.

Beliefs and feelings about money often become deeply and unconsciously imbedded during childhood through traumatic financial experiences or watching parent behavior with money.

In order to deconstruct this difficult topic and come up with some actionable strategies, let’s take a look at some guiding principles.

Our level of happiness rises with income to a certain point

Psychologist Daniel Kahneman won the Nobel Prize for his work regarding happiness and income. A very rough summary of his work suggests that people’s life happiness will rise with their income until essential needs are met, then life happiness levels off and doesn’t rise much with increased income after that point.

Other authors like Robert Frank (Luxury Fever: Why Money Fails to Satisfy in an Era of Excess) have surveyed research that shows constant material excess or gain often doesn’t produce psychological or physical well-being, and may even increase suffering. Of course, many great spiritual traditions have observed this for millennia.

Therefore, if you need money to feed your family or pay your rent, but your job doesn’t provide enough pay for adequate food or housing, no amount of extra motivational strategies at work can make up for that problem. You will probably leave that job as soon as you can. In this sense, pay would need to be increased to a reasonable market level in order for you to consider staying.

On the other hand, if you are paid about average for what you do, other motivational strategies used by the leader will become very important in whether you will stay at the job, be happy there, or remain engaged in your work.

Higher pay doesn’t guarantee harder work or increased employee happiness

Strangely, sometimes paying someone more money for an activity they enjoy actually decreases motivation. We wrongly assume that increasing pay always increases motivation. This shows just how complicated human motivation can be. Author Daniel Pink dissects some of this complicated topic in his phenomenal book Drive: The Surprising Truth About What Motivates Us.

After all, we all know very hard-working people that don’t make much money and love what they do, and are happy with their lives.

Sometimes the worst employees want the most pay

Gallup points out that both good and bad employees may think they deserve a raise. Ironically, it is often the worst employees that are the most vocal or think they are most deserving.

If you have control over how much you pay people, make sure you have clear standards for how you increase pay, and definitely don’t pay your worst employees more money. This is a sure way to lose good people. Employees talk and this information often leaks out.

Some people would benefit more from restraining their spending 

Much research has pointed out that if people don’t learn to restrain their spending habits or decide how much is enough, they will never be satisfied with their income. It has never been easier to spend money in history as it is right now. For more on this topic, check out decades of research in The Millionaire Next Door.

For this reason, employees wanting higher income is not always reasonable.

Take action now

So after sifting through all this research, what can leaders do?

  1. Determine appropriate pay. If you have control over how much to pay people, you should find out how much you are paying compared to the market. All good businesses hire and keep the best people and you can’t do that without paying them reasonably well. If you don’t know what the market is paying, you are at risk for losing your most important business asset—your people. I have a friend who conducted a number of national surveys to determine if he was paying people fairly, then advocated to his boss using the data to increase employee pay.
  2. Listen and survey. Great leadership always begins with listening, and you cannot lead if you don’t listen frequently. Leaders are often afraid to ask questions because of what they might hear, but asking your team for input is a leadership best practice. Good employees know you won’t be able to implement every suggestion, but asking and acting on some feedback is essential. Go back to my post about the 12 Gallup Questions that best predict workplace satisfaction and engagement. Every leader should be familiar with these. Employees should have an anonymous way to provide feedback or it won’t work.
  3. Make sure you offer other important benefits. Salary is not the only form of payment. Things like medical coverage, time off, and retirement plans are all other forms of financial compensation that make an employer competitive. I work for the state of California and I am constantly grateful for the incredible medical benefits, time off, and retirement plan that my employer offers. When I have looked at other jobs, these things have been a big reason for me staying.
  4. Flexible scheduling (when they do the work). These days people want more flexibility. The telework boom of the pandemic only intensified this and created more employers who offer work from home. But even if you cannot offer telework, consider more flexible schedules whenever you can. This is especially important for employees with young children and all the demands that come along with that. Morgan Housel points out in his brilliant book The Psychology of Money that the ultimate goal of wealth is to gain more freedom and control over one’s time. People might really consider staying at a job where flexibility offers them a much higher quality of life or family time.
  5. Employee appreciation and recognition. There is a ton of research showing that thanking and recognizing employees constantly is a key factor in keeping people. It is a pillar of any thriving team. People who feel unappreciated leave, and leaders don’t appreciate people nearly often enough, or as often, as they think they do.
  6. Purpose, meaning, and values. People want to feel like what they are doing makes a difference in the world. They also need to know how their individual job contributes to the good of the company. It’s the leaders job to tell stories and provide feedback to help people see how their tasks fit into the bigger picture. People will do volunteer work without pay for organizations with an inspiring mission or meaningful goal.
  7. Autonomy and Control (what and how they do the work). Decades of psychology research indicates that control is one of the most essential human needs. Anything that you can do to provide a team member more control over their own work or workplace decisions will increase motivation. Maybe this is choosing their own due dates or projects or providing comments on upcoming organizational changes. Everyone knows that micromanaging really demotivates people, so provide as much autonomy to your people as you can.
  8. Professional growth and career opportunities. The best employees want to know they are growing with best practices in their field or getting opportunities for career advancement. If you cannot improve pay, maybe you can provide opportunities for training or exposure to higher levels of the organization. Try letting someone cover for you in a meeting or when you are out of the office. This aids in succession planning and provides opportunities for others to learn and shine. Numerous studies show that pay is more about status for people, so helping with career advancement or training might be a more powerful incentive than pay in some cases.
  9. Foster a sense of community. People who have friends at work are less likely to leave a job, so anything you can do as the leader to help build community or friendships on your team is a vital retention tool. Have a potluck, go to a conference, organize a ski trip—keep this up frequently.

Have a great weekend!


Want more? Suggested Resources Below

  1. The Psychology of Money by Morgan Housel
  2. Drive by Daniel Pink
  3. Gallup article The Problem of Pay




Dr. Parker Houston

Parker Houston

Dr. Parker Houston is a licensed clinical psychologist and board-certified in organizational psychology. He is also certified in personal and executive coaching. Parker's personal mission is to share science-based principles of psychology and timeless spiritual practices, to help people improve the way they lead themselves, their families, and their organizations. *Opinions expressed are the author's own.
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